December 4, 2014 / 8:14 AM / 4 years ago

Volkswagen to give more power to brands, regions

WOLFSBURG, Germany (Reuters) - Volkswagen (VOWG_p.DE) will hand more power to brand managers and regional bosses, its labor leader told Reuters, as Europe’s biggest carmaker looks to address underperformance in markets such as the United States and Brazil.

Bernd Osterloh, head of VW's works council, poses for the media at a production line at the Volkswagen headquarters in Wolfsburg December 2, 2014. REUTERS/Fabian Bimmer

Bernd Osterloh, head of the German group’s works council, also said in an interview he expected Chief Executive Martin Winterkorn to extend his contract by two years to 2018.

Volkswagen (VW) has expanded rapidly since Winterkorn took the helm in 2007, with profit almost doubling to 11.7 billion euros ($14.4 billion) in 2013, and aims to overtake Toyota (7203.T) as the world’s biggest automaker no later than 2018.

But that goal is under threat from pockets of underperformance, such as the United States where sales of the core VW passenger car brand are down 11 percent this year.

The company has announced plans to cut 5 billion euros of costs at the VW brand in a bid to improve profitability, and now intends to give more power to brand and regional business leaders to better address local markets.

“I think a company of this size cannot steer everything from Wolfsburg,” Osterloh said at the group’s headquarters in the German town. “Our approach is: centralize as much as necessary and decentralize as much as possible.”

The VW group, whose brands range from the upmarket Audi and Porsche to the cheaper Seat and Skoda, has 108 factories worldwide and makes annual sales of nearly 200 billion euros — about the size of Israel’s gross domestic product.

In the United States, it is setting up a planning center and is hiring about 200 engineers to monitor the world’s No.2 car market more closely and revamp vehicles more quickly.

“That’s not just an issue in North America but will also be a topic in other regions,” said Osterloh, who sits on VW’s supervisory board which formally appoints executive board members.

Company sources have said over-centralization in Germany, where a small group of top managers seek involvement on matters such as product strategy and quality control, has delayed models and contributed to underperformance in markets such as the United States and Brazil.

Separately, Osterloh said he expected CEO Winterkorn to extend his contract to 2018. The 67 year-old boss stoked speculation about his departure in a recent interview, noting he would be 69 when his current contract expires in December 2016.

“We are not interested in letting the best manager in the auto industry go,” Osterloh said. “If we would say carry on further, he would not put us on hold.”

Winterkorn will outline efficiency measures and investment plans at a staff gathering at the Wolfsburg plant on Thursday. The carmaker said last month it would spend 85.6 billion euros at its auto operations through 2019 on foreign expansion, new models and technology.

Editing by Mark Potter

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